FRP Chainsaw Logging Marketing Study.

1
FRP Chainsaw Logging Marketing Study.

• Andrew Mendes BA, MA

2
What is Marketing

• Marketing today is an holistic, all inclusive
  concept covering every aspect of forestry from
  forest to final market.

3
The Marketing Value Chain.
Table 1.  
The Marketing Value Chain     PRIMARY
ACTIVITIES
TECHNOLOGY DEVELOPMENT
SUPPORT ACTIVITIES   Source Porter, M.
E.(1985) Competitive Advantage. New York Free
Press.
4
The concept of matching resources.

• In the context of forestry in Guyana, this means
  matching what is essentially a niche volume
  resource, through appropriate technology, value
  added techniques and appropriately sized
  enterprises, to a market either existing or
  created.
• The concept of value rather than volume.

5
Porters Generic Marketing Model.

• Micheal Porter, a well known marketing Guru,
  stated that you either compete on price, quality
  or in niche markets. In addition you need to
  concentrate on your chosen path and not try to
  compete in differing market segments.

6
Guyanas Forest Resource Base.

• Low volume, high defect and high species
  diversity forest.
• GFC Code of Practice allows a maximum coupe rate
  of 20 m3/ha over a 60 year cutting cycle.
  Compared to Brasil which allows 40 m3/ha over a
  25 year cycle.
• Actual coupe rate for the 18 active large
  concessions is 5.02 m3/ha.

7
Consequences!!

• High log extraction costs and lumber production
  costs.
• Landell-Mills in a 1995 study of 7 large
  concessions in the Essequibo Region put the cost
  to extract 1 m3 of log to the sawmill gate at
  US85 M3.
• Coupled with recovery rates of lt 40 this gives
  lumber production costs of US250 450 M3.

8
Consequences contd!

• Poor or marginal performance of large, capital
  intensive forest operations, leading to many of
  them reverting to the expediency of commodity log
  exports.

9
Chainsaw logging costs of production

• Between US80 130 m3 delivered Georgetown.

10
Why so low?

• Takes the means of conversion to the stump no
  transportation of waste.
• Minimal capitalisation utilises contracted in,
  dual use equipment.
• Minimal bureaucratic and management overheads
  appropriately sized enterprises.
• Illegal aspect of the operations represents less
  than 10 of the costs of production.

11
Benefits.

• Pays ½ the revenues of the GFC on ¼ the allocated
  forested lands.
• Employs 75 of the people in the forest sector.
• Provides 60 of the local lumber.
• Poverty alleviation retains 50 75 of the net
  value of the product in the source community.

12
Forest Allocation
Figure 2. Forest allocation of State Forests by
SMFEs and Large concessions (SMFE State Forest
Permissions and Wood Cutting Leases / LARGE
Timber Sales Agreements)     Note that the two
main components of revenue earning are the
payments of acreage fees and royalties (GFC
2003b)
13
Revenues to GFC from large and small concessions.
Figure 1. Revenue earned from large versus small
concessions ( of total revenue earned)- GFC
2003b
 
14
Production vs Marketing orientation.
Table 2. Production orientation vs marketing
orientation. Production orientation the
produce to sell cycle. Production capabilities
?produce product ? sell ? customers.     Marketing
orientation Customer needs ? Potential market
opportunities ? market products ? customers  
15
Concentration on producing volume and not value.

• Driven by the arbitrary grading standards of the
  local retail lumber sector that promotes volume
  over value.
• Perception that volume equals value due to poor
  understanding of costs eg. Preference to
  produce Mora sleepers rather than flooring or
  decking.
• Because of this attract commodity pricing for
  their product.

16
Lack of planning.

• No inventory is done so concessionaires have no
  capacity to secure markets before they produce a
  product.
• Makes supplies unreliable and more expensive.
• Increases cost of extraction due to increased
  road density.
• Reduced recovery due to missed timber.
• Cost of doing an inventory is just G2 per bd.ft.

17
Lack of building code.

• Non standard housing, door and window dimensions
  leading to necessity for custom sizes in lumber
  and a cut to order scenario that reduces
  recovery rates. Also the prevalence of long
  lengths.
• No grading of wood for structural integrity
  purposes leads to arbitrary grading standards
  in the local market that discourages cutting to
  get the highest grade.

18
Competitiveness and specialisation.

• Lower production cost of chainsaw operations
  leads to a more competitive value added sector.
• Lower production cost and higher profitability of
  chainsaw operations allows specialisation of
  operators as encouraged by the 2003 ITTO
  Diagnostic Mission.

19
Lack of synergies and links between suppliers and
buyers.

• There are no formal links between chainsaw
  operators and lumberyards results in lower
  prices paid for lumber in what is essentially a
  suppliers market.
• Because of this lumber prices only started to
  increase in 2004 -5 due to the shortage of sawn
  lumber locally.

20
Rise in Purpleheart and hardwood prices 1999 -
2006
21
Missed opportunities.

• Because of the lack of communication, potential
  buyers cannot find sawn lumber and sellers get
  lower prices for their product.

22
The chainsaw as a prime saw.

• Lumberyards insist that chainsaw operators
  deliver a majority of 1 inch thick material as
  they have no resaw capability.
• Costs more to produce for chainsaw operators
  double the number of cuts, labour and fuel
  compared to cutting two inch material.
• Lower recovery rate.

23
Lumber recovery rates cutting 1 and 2 inch
material.
Table 1            Summary recovery rates for
SITE 3. measuring recovery from heartwood of log
MYC 19.
 
24
Benefits of resawing.

• The lumber yard ends up with a much better
  finished product.
• No hit and missing in 1 inch material.
• Potentially higher volume availability.
• Potential recovery rates in the 50 60 range
  with chainsaws.

25
(No Transcript)
26
(No Transcript)
27
The Consolidation yard concept

• Establish a concentration/consolidation yard to
  be logistical/infrastructural nexus between the
  producers and better paying export market for
  lumber.
• Provide price incentives to cut for grade and
  for quality.
• Provide value added services to maximise value
  creation in the sector.
• Provide training in sawing, tooling maintenance
  to improve grade lumber recovery.

28
Consolidation yard.

• Provide financing to improve equipment and
  practices in the sector ie. Portable mills.
• Provide training and markets for those operators
  that want to venture into value added products.

29
Conclusions.

• The sector is poorly organised such that it
  limits the pricing accessible by operators
  needs at a minimum basic networking, synergies
  and communication between suppliers and buyers.
• Some form of central database of who is producing
  what and where and who is looking for what.

30
Conclusions.

• Though not what could be considered best
  practice chainsaws recovery rates are at least
  comparable to traditional stationary mills and
  can be improved greatly by adoption of a resaw
  culture.
• To improve quality and value creation in the
  sector needs a concerted, holistic approach to
  the sectors development the concentration yard
  concept perhaps!

31
Conclusions.

• The sector developed spontaneously out of a need
  to support depressed interior communities without
  support into a significant contributor to rural
  livelihoods and the Forestry Commission.
• The sector therefore begs to be viewed in a
  positive, developmental light as it deserves. It
  begs for support to redress the negative aspects
  of the sector. From our experience, given the
  support they are willing to improve their
  practices and their contribution to the nation as
  a whole.